Further comments on Guonan Ma "A compelling case for Chinese monetary easing", 14/07/2015
I think some of China’s monetary policy approaches are innovative. For example, the differential treatments of first home buyers and other property buyers is a good example, as I mentioned earlier. The People's Bank of China (PBoC), China's central bank, has used different requirement of Loan Value Ratios (I am not sure it also applied differential rates) for the two different buying groups.
I would suggest that the central bank could charge a non-zero interest rate to commercial banks for home loans for non-first home buyers. That can regulate the property market and at the same time acts as a revenue to the country as opposed to let commercial bank to reap the benefits of higher rates applied to non-first home buyers.
Secondly, the use of reserve ratio, though it has been available to the monetary authorities but seldom used in the west advanced countries, provides another flexibility in applying monetary policy. That is because the monetary authority can maintain a particular target interest rate and at the same time to regulate the level of money supply.
Having said that, I would caution that the Chinese monetary and fiscal authorities in unduly intervening in the market activities, such as the authorities’ words and actions in the stock market over the last year and including the most recent interventions to proper up the market. The government and monetary authorities should not be in that market in that way.
In summary, the addition of additional tools or the allowance of more flexibilities in the monetary policies in China should be studied for the more widespread application of the better ones.
In response to Guonan Ma's reply on 15th July, 2015, 10:43 am: "To Lintong Feng: Policy issues involved are multiple in China. A threshold question is whether Chinese monetary policy stance should become less restrictive. Then the next question is what tools should be matched with which particular targets. The issue you raised hence relates more to the choice of instruments. In principle, the Chinese government might also tax mortgage for the second or third homes rather than regulating their mortgage rates, especially in a more liberalised environment."
Thanks Dr Ma for your reply.
I agree with your point on an easing monetary stance in China.
My argument for the imposition of an interest rate on the banks from the PBoC is effectively a tax in nature. I think we are on the side of that argument. There is no disagreement between us on that.
The PBoC may be relatively better positioned to initiate and enforce the "tax" as part of its monetary policy tools than the Department of Finance or the Taxation Bureau. In fact, monetary authority should probably have the responsibility for the health of asset markets, i.e. preventing bubbles and the so called exuberance (is it the correct word that the former Chairman of the Federal Reserve, Alan Greenspan used?)
Showing posts with label fiscal policy. Show all posts
Showing posts with label fiscal policy. Show all posts
2015-07-13
Ma has a good point on Chinese monetary policy
Comments on Guonan Ma "A compelling case for Chinese monetary easing", 13/07/2015
It is regrettable that the deleveraging process earlier on and the response to the possibly excessive fiscal in the wake of the GFS took a rather mechanical approach in China, particularly in the global context of extremely easing monetary policies in the major economies as Dr Ma has mentioned. That mechanical approach reflected either inexperience or some silly ideological approach by some advisors or policy makers.
Further there was a weaker external demand and macro policies should have been aimed at stimulating domestic demand, including either or both of monetary and fiscal policy tools. I have elsewhere argued that there is an issue of optimisation even when dealing with excess capacities, as opposed to simply tightening in both monetary and fiscal policies.
On one point, though, I would not necessarily agree with Dr Ma, that is, the role of the PBoC in credit allocation. It appears that China's approach to financing housing market with a differential approach to first and other residential properties is commendable.
On the contrary, in most west advanced economies, there is a lack of monetary tools apart from the economy wide and market agent wide tool, that is, one interest rate for all, reflecting the weakness of their approach to monetary policy of being unable to deal with the requirement of more than one tasks. In that regard, China's differential approach is superior in my view.
We need more tools to deal with more tasks. The Chinese approach, in principle, is in the right direction. Of course, there is a degree or limit to that approach and one cannot expect all problems can be solved through monetary policies.
Having said that, the exact way the Chinese authorities has managed its stock market over the past year or so has created the problem of moral hazard and is not commendable at all. It should not have intervened as it has done, creating a bubble and then trying to sustain the bubble.
It is regrettable that the deleveraging process earlier on and the response to the possibly excessive fiscal in the wake of the GFS took a rather mechanical approach in China, particularly in the global context of extremely easing monetary policies in the major economies as Dr Ma has mentioned. That mechanical approach reflected either inexperience or some silly ideological approach by some advisors or policy makers.
Further there was a weaker external demand and macro policies should have been aimed at stimulating domestic demand, including either or both of monetary and fiscal policy tools. I have elsewhere argued that there is an issue of optimisation even when dealing with excess capacities, as opposed to simply tightening in both monetary and fiscal policies.
On one point, though, I would not necessarily agree with Dr Ma, that is, the role of the PBoC in credit allocation. It appears that China's approach to financing housing market with a differential approach to first and other residential properties is commendable.
On the contrary, in most west advanced economies, there is a lack of monetary tools apart from the economy wide and market agent wide tool, that is, one interest rate for all, reflecting the weakness of their approach to monetary policy of being unable to deal with the requirement of more than one tasks. In that regard, China's differential approach is superior in my view.
We need more tools to deal with more tasks. The Chinese approach, in principle, is in the right direction. Of course, there is a degree or limit to that approach and one cannot expect all problems can be solved through monetary policies.
Having said that, the exact way the Chinese authorities has managed its stock market over the past year or so has created the problem of moral hazard and is not commendable at all. It should not have intervened as it has done, creating a bubble and then trying to sustain the bubble.
2015-07-09
A balanced approach not a particular ideology is needed
Comments on John Daley and Danielle Wood "Fiscal challenges for Australia", 9/07/2015
It is all increase tax or have another new tax or reducing superannuation concessions. Why not reduce government spending? Why not to regard spending as so needy? You say the following on the one hand:
The Commonwealth Government has run deficits for six years, largely due to a rapid increase in net spending on older households. The costs of repaying these deficits will fall primarily on younger households."
Then on the other hand, you say to reduce superannuation concessions, its uttally self contradiction.
Further it is worst behaviour to pit the old against the young, as your statement of the last sentence in the paragraph implies. Isn't it a fact that Australia is among the lowest government debts to GDP ratio and even IMF argues for Australian government to increase spending to stimulate the economy due to our relatively low debt to GDP ratio?
It all seems a particular ideology at working.
It is all increase tax or have another new tax or reducing superannuation concessions. Why not reduce government spending? Why not to regard spending as so needy? You say the following on the one hand:
The Commonwealth Government has run deficits for six years, largely due to a rapid increase in net spending on older households. The costs of repaying these deficits will fall primarily on younger households."
Then on the other hand, you say to reduce superannuation concessions, its uttally self contradiction.
Further it is worst behaviour to pit the old against the young, as your statement of the last sentence in the paragraph implies. Isn't it a fact that Australia is among the lowest government debts to GDP ratio and even IMF argues for Australian government to increase spending to stimulate the economy due to our relatively low debt to GDP ratio?
It all seems a particular ideology at working.
2013-09-23
There are two dimesions in fiscal policy
Comments on Stephen Koukoulas "Sense should squib a surplus promise", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/economy/sense-should-squib-surplus-promise
The talks of whether the budget is in crisis or not come down to different perspectives and what you compare with. If one compares ours with those in deeper trouble as Stephen did, ours is in a much better shape and not in crisis. On the other hand, if one compares with prudent practices as the Coalition implies, ours was not good and the speed of the debt growth may be described as crisis.
Both have a point of their own logic and reasoning.
However, the right thing to do is to choose the better elements of each side and do a better job in both managing the budget (better than in the past years to avoid wastes and reduce unnecessary spendings and achieving surplus as early as possible) and keeps the economy growing (the traditional fiscal policy management for the economy).
To achieve that, the government needs structural reforms to government expenditures to achieve the same outcomes with less spending or achieve better outcomes with the same spending.
So, it is important to bear in mind that fiscal policy has two dimensions of both a aggregate size and its structural content and work on both aspects to achieve the most optimal outcomes.
A good economist pays attention to both dimensions when considering fiscal policy.
The talks of whether the budget is in crisis or not come down to different perspectives and what you compare with. If one compares ours with those in deeper trouble as Stephen did, ours is in a much better shape and not in crisis. On the other hand, if one compares with prudent practices as the Coalition implies, ours was not good and the speed of the debt growth may be described as crisis.
Both have a point of their own logic and reasoning.
However, the right thing to do is to choose the better elements of each side and do a better job in both managing the budget (better than in the past years to avoid wastes and reduce unnecessary spendings and achieving surplus as early as possible) and keeps the economy growing (the traditional fiscal policy management for the economy).
To achieve that, the government needs structural reforms to government expenditures to achieve the same outcomes with less spending or achieve better outcomes with the same spending.
So, it is important to bear in mind that fiscal policy has two dimensions of both a aggregate size and its structural content and work on both aspects to achieve the most optimal outcomes.
A good economist pays attention to both dimensions when considering fiscal policy.
2013-04-29
Set a revenue to GDP ratio to improve policy making and service delivery
Comments on John Freebairn "Federal Budget 2013: Why our unsustainable structural deficit must be tackled", 29/04/2013, https://theconversation.com/federal-budget-2013-why-our-unsustainable-structural-deficit-must-be-tackled-13723
I largely agree with the remark by the author that "The mix of tax increases and expenditure reductions require society to make judgements about the relative roles of government and the private sector, and about the relative merits of more or less limited income and resources allocated to government goods and services versus private sector provided goods and services."
Personally, I think there should be a ceiling of taxation revenue to GDP ratio to constrain any government irrespective to their political persuasions, otherwise, it is too easy for politicians to raise tax rates, increase new taxes and levies. Politicians' mandates should be set with a clear limit, so they can focus better on better policies and efficient service delivery.
I personally think that all government revenues to the GDP ratio should not exceed a third for the near future; that would leave two thirds to the private sector. In the longer term, 30% should be aimed for.
Within that broad parameter, the three levels of government should have an agreed shares of the different revenues according to their service responsibilities.
2013-01-29
Better economic policy means less central bank independence
Comments on Graeme Wells “Stiglitz is wrong to dismiss central bank independence”, 29/01/2013, https://theconversation.edu.au/stiglitz-is-wrong-to-dismiss-central-bank-independence-11745
The independence of central banks from government of the day has its merits, although a central bank should be more ideally subject to the overall coordination of an integrated economic oversight committee so the best combination of monetary and fiscal policies can be more easily achieved, as what is meant in economics.
This view on the independence of cantral banks is different from the conventional view of dependence in relation to government of the day.
Based on this criterion, Stiglizt's idea is not too bad.
The key is how to have a national economic oversight committee that serves the people as opposed to political parties that have their own political interests that can often be in conflict with the people's interests.
Further, how to deal with a government formed by elected political party members by such a committee also needs careful considerations.
But a national debate should be had on these sorts of questions. Without such debates, new and more effective economic governance is unlikely to appear.
The independence of central banks from government of the day has its merits, although a central bank should be more ideally subject to the overall coordination of an integrated economic oversight committee so the best combination of monetary and fiscal policies can be more easily achieved, as what is meant in economics.
This view on the independence of cantral banks is different from the conventional view of dependence in relation to government of the day.
Based on this criterion, Stiglizt's idea is not too bad.
The key is how to have a national economic oversight committee that serves the people as opposed to political parties that have their own political interests that can often be in conflict with the people's interests.
Further, how to deal with a government formed by elected political party members by such a committee also needs careful considerations.
But a national debate should be had on these sorts of questions. Without such debates, new and more effective economic governance is unlikely to appear.
2012-12-19
More global coordinations in economic policy requried
Comments on Stephen Grenville “Central banks have run out of answers”, 19/12/2012, http://www.businessspectator.com.au/bs.nsf/Article/Central-banks-US-England-BoE-monetary-fiscal-polic-pd20121219-34SAC?OpenDocument&src=sph&src=rot
It is more likely for monetary policy, such as the various forms of QEs adopted now by big central banks, to work if there is only one big ones to do it and most others didn't do it.
When all central banks are doing the same QEs all at once, then the effects in one country is offset by others in terms of lowering its exchange rates and raising its international competitiveness.
While at the moment this hasn't translated into global inflation, sooner or later it will occur, along with it, a possible race by central banks to rein in monetary policies to combat inflation and generate stagnant economies that will be a repeat of the stagflation in the 1970s following the first oil shock.
In a sense, the current situation has demonstrated that monetary policies have done more than they can do to achieve meaningful objectives and more than they should do. That is more than the limit of zero interest rate or the liquidity trap when only one faced that situation.
Given the current fiscal malaises in many advanced countries and the near zero effects of monetary policy and the longer term inflationary effects, now an even taller order is required of the global leaders and economic managers, that is, they must coordinate both monetary and fiscal policies and act just as the global is the one economy and they are managing that one economy as opposed to many individual and separate economies and competing against each other.
This requires that all major countries should have work together and design both fiscal and monetary policies together. It will be extremely difficult if not impossible outright. Otherwise, the global economy will be in doldrums for a long time to come.
It is more likely for monetary policy, such as the various forms of QEs adopted now by big central banks, to work if there is only one big ones to do it and most others didn't do it.
When all central banks are doing the same QEs all at once, then the effects in one country is offset by others in terms of lowering its exchange rates and raising its international competitiveness.
While at the moment this hasn't translated into global inflation, sooner or later it will occur, along with it, a possible race by central banks to rein in monetary policies to combat inflation and generate stagnant economies that will be a repeat of the stagflation in the 1970s following the first oil shock.
In a sense, the current situation has demonstrated that monetary policies have done more than they can do to achieve meaningful objectives and more than they should do. That is more than the limit of zero interest rate or the liquidity trap when only one faced that situation.
Given the current fiscal malaises in many advanced countries and the near zero effects of monetary policy and the longer term inflationary effects, now an even taller order is required of the global leaders and economic managers, that is, they must coordinate both monetary and fiscal policies and act just as the global is the one economy and they are managing that one economy as opposed to many individual and separate economies and competing against each other.
This requires that all major countries should have work together and design both fiscal and monetary policies together. It will be extremely difficult if not impossible outright. Otherwise, the global economy will be in doldrums for a long time to come.
2011-12-30
Economic ideology and reality
Comments on TONY MAKIN “Fiscal stimulus, not Europe, to blame for economy”, 30/12/2011, http://www.theaustralian.com.au/national-affairs/opinion/fiscal-stimulus-not-europe-to-blame-for-economy/story-e6frgd0x-1226232857308
While it is ideally good that governments run balanced budgets, is there a point of process optimisation that may give rise to budget deficits and surplus in some years?
While monetary policy has been argued by many economists to be used as the macroeconomic policy tool to regulate the economy, haven't we already seen that monetary policy has its limitation as well, especially during the GFC 1, where interest rates were at or near 0 and economies were still struggling even with strong fiscal stimulus in the US and Europe?
Why do some economists only think along a particular line of thought with little regard to the reality and to whether it is working or not?
Besides, how can the traditional monetary policy along to deal with the two speed or patch work economy as Australia has witnessed with mining booms?
2011-10-29
Better mix of macroeconomic policies needed
Comments on Bill Evans “WEEKEND ECONOMIST: Racing to a rate cut”, 29/10/2011, http://www.businessspectator.com.au/bs.nsf/Article/Reserve-Bank-November-Meeting-rate-cut-25-bps-pd20111028-N39US?OpenDocument&src=rot
It is interesting that both official and market interest rates in Australia are much much higher than in most advanced economies.
While one might argue that our economy is also much better than theirs, simply doing it masks a difficult policy questions. That question is: how can monetary and fiscal policies be more closely coordinated, as generally implied in economics textbooks, to achieve better and most desirable results.
I think fiscal policy should do much more to encourage people to work in regions and areas where labour shortage are the most severe, such as the fast lane areas of the so called 2 speed economy.
Taxation policy should be adjusted to do the job to give people more incentives to work in those region and areas.
Fiscal policy can be more flexible to target regions and industries sectors, while leaving the monetary policy to accommodate the whole economy.
I think there is a need to establish a national economic policy commission, so it can recommend to the government and the RBA on the best mix of the monetary and fiscal policies to achieve the best national outcomes and to benefit the consumers more, such as lower interest burdens on mortgages and other borrowings.
2011-08-24
A mechanism for a transfer union, the euro zone
Comments on KarenMaley "Will Merkel snap the olive branch?" 24/08/2011, http://www.businessspectator.com.au/bs.nsf/Article/Angela-Merkel-Greek-bailout-eurozone-debt-crisis-m-pd20110824-KZU3L?OpenDocument&emcontent_Maley&src=rot
Well, there should be some risk premium to be paid by higher risk members to lower risk members to reflect different levels of sovereign risks among the euro members, and as a measure of discipline for any careless and or imprudent policies by certain members.
Well, there should be some risk premium to be paid by higher risk members to lower risk members to reflect different levels of sovereign risks among the euro members, and as a measure of discipline for any careless and or imprudent policies by certain members.
It would also alleviate the concerns of lower risk and more prudent members, and as a reward or as a guarantee to them so that they will not completely sacrifice themselves for any imprudent members.
Of course, the premium paid by any member should be smaller than what it could get from capital markets for the mechanism to work effectively and in every member's interests.
2011-08-16
Rethink and redesign economic policies
Comments on Stephen Grenville “Curing the US policy paralysis”, 16/08201, http://www.businessspectator.com.au/bs.nsf/Article/US-debt-ceiling-economic-policy-politics-deficit-f-pd20110815-KR8BT?OpenDocument&src=rot
While the suggestions in the post are obviously rational economic thinking, they may encounter stiff political headwind at the current political and government deficits and debt environment.
I think any rational economic arguments must take into account the current environment and constraints to be feasible and practical.
The US obviously needs to increase tax, or reduce expenditure to be fiscally sustainable. But at the same time, fiscal policy should have a real expansionary effect to stimulate the economy and get it back to normal growth and to reduce unemployment.
The two may apparently appear to be contradictory ad unreconcilable. However, the right fiscal policy can still be designed and implemented.
What the US, and indeed many other west economies which are having similar problems, need is to shift from the pure quantitative fiscal thinking in economics to designing the a better structural fiscal policy to increase the real effectiveness of fiscal policy.
For example, the practice of work for the dole program that has been seen in Australia could be supplemented by directing the "workers" to work for government public work, or for private enterprises to have a win-win-win situation for both the government, private enterprises and the unemployed.
In fact, many policies could be redesigned to make the same quantity of fiscal expenditure to have a much greater effect, so to increase the effectiveness or productivity of fiscal spendings.
In terms of increasing taxes or ending the tax cuts, a more politically feasible option is to end or reduce the tax cuts for all, both rich and poor, by the same proportion, at the same time, the US government could make those reductions a low or no interest 'loan' available to the same people. In that way, the fiscal sustainability can be achieved while the impact on real consumption is minimised.
So, if economists and government policy makers are innovative and creative enough, the current economic problems can be resolved.
2011-04-14
Swan's strict fiscal rule
Comments on Wayne Swan “Fiscal policy is setting us apart”, 14/04/2011, http://www.theaustralian.com.au/national-affairs/commentary/fiscal-policy-is-setting-us-apart/story-e6frgd0x-1226038712169
A comment first: yes Mr Swan, your fiscal rule is strict: if there are additional expenditures, you bring in a new tax to meet them.
That is as strict as it can get.
But whether that is responsible or not, or a good fiscal policy approach or not, is another matter altogether, isn't it, Mr Swan?
It is not too difficult for people to see it at least is a very lazy approach, no matter how you dress it up and spin around.
PS: maybe Mr Swan meant another strict fiscal rule: to only allow school to use the BER funding for building school halls and or libraries, irrespective what they need most and how effectively those school halls and or libraries contribute to those schools education needs.
Of course, it was wastage, as most people have realised.
A comment first: yes Mr Swan, your fiscal rule is strict: if there are additional expenditures, you bring in a new tax to meet them.
That is as strict as it can get.
But whether that is responsible or not, or a good fiscal policy approach or not, is another matter altogether, isn't it, Mr Swan?
It is not too difficult for people to see it at least is a very lazy approach, no matter how you dress it up and spin around.
PS: maybe Mr Swan meant another strict fiscal rule: to only allow school to use the BER funding for building school halls and or libraries, irrespective what they need most and how effectively those school halls and or libraries contribute to those schools education needs.
Of course, it was wastage, as most people have realised.
Further, the pink batts scandals are worse than whether the insulations are effective or efficient or not, it still costs taxpayers money now to just fix up the messes left by those programs.
2011-04-13
Reforming budgeting processes to raise quality of fiscal policy
Comments on Stephen Kirchner “Trimming to fit budget's reduced revenue”, 13/04/2011, http://www.theaustralian.com.au/national-affairs/commentary/trimming-to-fit-budgets-reduced-revenue/story-e6frgd0x-1226038104396
It is always the case that both the macroeconomic level and balance of a government budget and its content of both expenditure and revenue are important.
Textbook macroeconomics assumes that the content of both expenditure and revenue measures is as good as it could get, then what is left is the level and balance of the budget.
In reality, the content should be more important, since it is there the microeconomic efficiency comes in.
Currently most governments don't publish the real ranking of expenditures in terms of their social and economic benefits, similar to private or government investments.
Maybe a far reaching fiscal reform is to publish estimates of the social and economic benefit of each significant budget expenditure item, including the average and marginal benefits.
Should such a reform is undertaken, then people can scrutinise government budget in a much consistent and transparent way.
More importantly, government has to work hard to get its expenditure right, better or close to best and it has explain major discrepancies or departures from higher social and economic returns expenditure to lower ones.
That will really improve the quality of government fiscal policy.
PS: To be fair to Treasury and Finance departments bureaucrats, they may have done a lot of calculations and estimates (though not necessarily in the explicit concept of social and economic benefits that I just wrote), but not many or much have been published except used by governments in their budget spins.
Secondly, a framework needs to be developed to do the job of estimating social and economic benefits of government expenditures. That framework may evolve and be perfected through practice.
It is always the case that both the macroeconomic level and balance of a government budget and its content of both expenditure and revenue are important.
Textbook macroeconomics assumes that the content of both expenditure and revenue measures is as good as it could get, then what is left is the level and balance of the budget.
In reality, the content should be more important, since it is there the microeconomic efficiency comes in.
Currently most governments don't publish the real ranking of expenditures in terms of their social and economic benefits, similar to private or government investments.
Maybe a far reaching fiscal reform is to publish estimates of the social and economic benefit of each significant budget expenditure item, including the average and marginal benefits.
Should such a reform is undertaken, then people can scrutinise government budget in a much consistent and transparent way.
More importantly, government has to work hard to get its expenditure right, better or close to best and it has explain major discrepancies or departures from higher social and economic returns expenditure to lower ones.
That will really improve the quality of government fiscal policy.
PS: To be fair to Treasury and Finance departments bureaucrats, they may have done a lot of calculations and estimates (though not necessarily in the explicit concept of social and economic benefits that I just wrote), but not many or much have been published except used by governments in their budget spins.
Secondly, a framework needs to be developed to do the job of estimating social and economic benefits of government expenditures. That framework may evolve and be perfected through practice.
Swan can't avoid Keynes's curse
Comments on Jessica Irvine “Swan proved Keynes works but can he avoid Keynes's curse?”, 13/04/2011, http://www.smh.com.au/opinion/politics/swan-proved-keynes-works-but-can-he-avoid-keyness-curse-20110412-1dcis.html
While there may indeed be Keynes's curse in a logic sense, but it is the real political economy of most government budgets that cause more grieves and cynics.
It is not the inevitable wastage of most government fiscal stimulus measures, but the stupid, sometimes deliberate and politically driven wastages that are the problem for the public.
For example, there have been so many examples of wastes shown in the BER programs. Further, the restrictions for the BER projects for each and every school to be either school hall or library were so problematic, because that is another form of wastage (it is not the best outcomes or the most effective projects for many schools and they could have been better off if they had been allowed to build what they need most) that could and should have been avoided.
The home insulation programs are another example. Why didn’t the government anticipate the potential risks and problems in advance and take measures to minimise them is beyond anyone’s belief?
On that account, Swan will not be able to avoid the crudest Keynes's curse due to those silly designs of the government policy and poor implementations.
Most economist students will be shocked to realise that the real world fiscal policy design in terms of its content is nothing like what they were taught from the textbook – a government that always acts with a good intention to achieve good fiscal policy objectives.
Welcome to the real world, at last.
While there may indeed be Keynes's curse in a logic sense, but it is the real political economy of most government budgets that cause more grieves and cynics.
It is not the inevitable wastage of most government fiscal stimulus measures, but the stupid, sometimes deliberate and politically driven wastages that are the problem for the public.
For example, there have been so many examples of wastes shown in the BER programs. Further, the restrictions for the BER projects for each and every school to be either school hall or library were so problematic, because that is another form of wastage (it is not the best outcomes or the most effective projects for many schools and they could have been better off if they had been allowed to build what they need most) that could and should have been avoided.
The home insulation programs are another example. Why didn’t the government anticipate the potential risks and problems in advance and take measures to minimise them is beyond anyone’s belief?
On that account, Swan will not be able to avoid the crudest Keynes's curse due to those silly designs of the government policy and poor implementations.
Most economist students will be shocked to realise that the real world fiscal policy design in terms of its content is nothing like what they were taught from the textbook – a government that always acts with a good intention to achieve good fiscal policy objectives.
Welcome to the real world, at last.
2011-03-31
How to fix USA Inc.'s Red
Comments on Mary Meeker “USA Inc.: Red, White, and Very Blue”, 24/02/2011, http://www.businessweek.com/magazine/content/11_10/b4218000828880.htm
It shouldn't be that difficult at all if the USA Inc can change its own thinking and behaviour to a more realistic level.
First, for example, if it does not continue the thinking it still has the means to keep its military dominance to the degree it has got now and reduce its military spending so just to be the same as the current world second largest military spending, then it can save a lot its taxpayer's money and contribute significantly to repairing its budget deficits.
It will not cause any security and defence danger to itself at all.
Secondly, it could take urgent actions in tackling climate change and reducing carbon emissions by applying a carbon tax and gradually increasing the tax.
This tax has dual functions: a. to join the other nations in action to limit adverse climate change or at least to act as insurance for the future of its citizens; b. it can raise revenue and reduce budget deficits.
They are only two of many options that the USA Inc has. The only question is: is it prepared to do the right and reasonable things?
It shouldn't be that difficult at all if the USA Inc can change its own thinking and behaviour to a more realistic level.
First, for example, if it does not continue the thinking it still has the means to keep its military dominance to the degree it has got now and reduce its military spending so just to be the same as the current world second largest military spending, then it can save a lot its taxpayer's money and contribute significantly to repairing its budget deficits.
It will not cause any security and defence danger to itself at all.
Secondly, it could take urgent actions in tackling climate change and reducing carbon emissions by applying a carbon tax and gradually increasing the tax.
This tax has dual functions: a. to join the other nations in action to limit adverse climate change or at least to act as insurance for the future of its citizens; b. it can raise revenue and reduce budget deficits.
They are only two of many options that the USA Inc has. The only question is: is it prepared to do the right and reasonable things?
2011-01-19
Change with changed economic reality
Comments on LaborPhil Quin “A flood levy would not break”, 19/01/2011, http://www.businessspectator.com.au/bs.nsf/Article/A-flood-levy-would-not-break-Labor-pd20110119-D8R9H?OpenDocument&src=sph&src=rot
While Quin may have considerable experience in political advice, I think his proposal of a federal flood levy by the Gillard government is nothing short of political suicidal. The public just does not trust the government in its governance and economic management, and hence anything beyond and out of the ordinary political course.
Ironically I think it is an absolutely expected and extraordinary political opportunity for it to give up its impossible task of its promise to deliver a budget surplus by the due year.
The strong $A just makes it harder for many exporters to maintain their profit levels and deliver enough tax revenue to the federal coffer.
Rather than continuing saying to deliver a surplus and failing to do it by the time of the next election will be on, it can say now it is responding to the unexpected Queensland floods and changing its budget priorities.
It does not need a levy, but needs to redress budget priority urgently. Any delay in seizing this opportunity from Mother Nature and god is political amateurship.
Incidentally, it can also address indirectly the poor impression that Gillard is lack of compassion and has been unable to demonstrate it.
That will be politically smart.
Gillard and Swan need to see the point and wake up from the mindset that budget balance is the king. It may be, but not now and not in the next 2-3 years.
While Quin may have considerable experience in political advice, I think his proposal of a federal flood levy by the Gillard government is nothing short of political suicidal. The public just does not trust the government in its governance and economic management, and hence anything beyond and out of the ordinary political course.
Ironically I think it is an absolutely expected and extraordinary political opportunity for it to give up its impossible task of its promise to deliver a budget surplus by the due year.
The strong $A just makes it harder for many exporters to maintain their profit levels and deliver enough tax revenue to the federal coffer.
Rather than continuing saying to deliver a surplus and failing to do it by the time of the next election will be on, it can say now it is responding to the unexpected Queensland floods and changing its budget priorities.
It does not need a levy, but needs to redress budget priority urgently. Any delay in seizing this opportunity from Mother Nature and god is political amateurship.
Incidentally, it can also address indirectly the poor impression that Gillard is lack of compassion and has been unable to demonstrate it.
That will be politically smart.
Gillard and Swan need to see the point and wake up from the mindset that budget balance is the king. It may be, but not now and not in the next 2-3 years.
2010-12-29
Mining boom and dutch disease
Comments on Tony Makin “Dutch disease no excuse for poor productivity”, 29/12/2010, http://www.theaustralian.com.au/news/opinion/dutch-disease-no-excuse-for-poor-productivity/story-e6frg6zo-1225977420144
Some points to consider:
1. If the mining boom really delivers some positive benefits to the Australian economy including those above mineral royalties, then part of that should be saved for compensating the use of minerals and for the benefit of future generations, as opposed only to lower tax rate for other industries in response to the Dutch Disease effects.
2. The slow down in productivity in the past decade, is that only in Australia or is that also in other industrialised economies? That can have significant implications. If it is a wider phenomenon, then Australia is at least not alone to blame.
3. While reducing government spending may reduce pressure on interest rates, what is the cost of lower government spending? Or government spending is only negative to the economy or neutral? Optimal government spending, excluding ineffecient policies and wastes, should be positive to the economy, it seems.
Some points to consider:
1. If the mining boom really delivers some positive benefits to the Australian economy including those above mineral royalties, then part of that should be saved for compensating the use of minerals and for the benefit of future generations, as opposed only to lower tax rate for other industries in response to the Dutch Disease effects.
2. The slow down in productivity in the past decade, is that only in Australia or is that also in other industrialised economies? That can have significant implications. If it is a wider phenomenon, then Australia is at least not alone to blame.
3. While reducing government spending may reduce pressure on interest rates, what is the cost of lower government spending? Or government spending is only negative to the economy or neutral? Optimal government spending, excluding ineffecient policies and wastes, should be positive to the economy, it seems.
2010-10-13
An independent national fiscal institution needed
Comments on Peter van Onselen “Political debate ignores role of debt in development”, 13/10/2010, http://www.theaustralian.com.au/business/political-debate-ignores-role-of-debt-in-development/story-e6frg8zx-1225937860456
The current political and institutional arrangements are the main source of the problem you have identified in this post.
It seems there should be a rebalance between political government and more independent institutions that have adequate resources and the capacities to look into longer term and policies, as well as the evaluation of current and past policies for their alignment with longer terms issues.
What that means is we should consider and establish an independent institution similar to RBA in terms of independence from the day of the government to look after fiscal policy matters and policy options and effects.
It is a new thinking but has been long overdue.
PS: politics in western countries including Australia are mostly focused on shorter terms due to the political processes and the election cycles. That is a fundamental weakness with the current state of democracy.
To balance that and to take account the importance of both democracy and longer term national interest, there should be some institutions which look after long term issues and policies and which are independent of the government and politics which are of short term in nature.
The independent judicial system in western countries is a good example. A number of independent central banks in terms of monetary policies are another.
The current political and institutional arrangements are the main source of the problem you have identified in this post.
It seems there should be a rebalance between political government and more independent institutions that have adequate resources and the capacities to look into longer term and policies, as well as the evaluation of current and past policies for their alignment with longer terms issues.
What that means is we should consider and establish an independent institution similar to RBA in terms of independence from the day of the government to look after fiscal policy matters and policy options and effects.
It is a new thinking but has been long overdue.
PS: politics in western countries including Australia are mostly focused on shorter terms due to the political processes and the election cycles. That is a fundamental weakness with the current state of democracy.
To balance that and to take account the importance of both democracy and longer term national interest, there should be some institutions which look after long term issues and policies and which are independent of the government and politics which are of short term in nature.
The independent judicial system in western countries is a good example. A number of independent central banks in terms of monetary policies are another.
2010-08-16
Two policy proposals for Japanese economy
Comments on Peter Drysdale “Can Japan deal with shrinking?” 15/08/2010, http://www.eastasiaforum.org/2010/08/15/can-japan-deal-with-shrinking/comment-page-1/#comment-144942
Clearly Japan needs to make significant and effective changes to get out of its economic difficulties.
Government policy makers and advisors must be creative in thinking and policy development.
Two additional measures might be able to help its causes:
1. Given its fiscal situation and the ineffectiveness of monetary policy at present conditions, why don't the government use revenue neutral measures to stimulate domestic demand and the economy? Revenue neutral measures, for example, could be done by increasing income taxes, but those taxes are refundable once consumption expenditure meets certain criteria. So it is a pure price mechanism to encourage consumption and demand.
2. To deal with population aging, Japan could set a policy of moderate immigration programs specifically linked to population aging for specified period. At the same time, the government should encourage higher birth rate by young people. This measure may change the public's psychology and fear of population aging and implications for future hardship.
Both policies can be designed in such a way to achieve agreed objectives.
Of course, the government needs to foster consensus on those policies and their objectives among the public.
Clearly Japan needs to make significant and effective changes to get out of its economic difficulties.
Government policy makers and advisors must be creative in thinking and policy development.
Two additional measures might be able to help its causes:
1. Given its fiscal situation and the ineffectiveness of monetary policy at present conditions, why don't the government use revenue neutral measures to stimulate domestic demand and the economy? Revenue neutral measures, for example, could be done by increasing income taxes, but those taxes are refundable once consumption expenditure meets certain criteria. So it is a pure price mechanism to encourage consumption and demand.
2. To deal with population aging, Japan could set a policy of moderate immigration programs specifically linked to population aging for specified period. At the same time, the government should encourage higher birth rate by young people. This measure may change the public's psychology and fear of population aging and implications for future hardship.
Both policies can be designed in such a way to achieve agreed objectives.
Of course, the government needs to foster consensus on those policies and their objectives among the public.
2010-06-25
Rebalance the budget shouldn't be difficult
Comments on Michael Stutchbury “True grit needed to balance budget”, 25/06/2010, http://www.theaustralian.com.au/business/opinion/true-grit-needed-to-balance-budget/story-e6frg9p6-1225884048738
The two issues are closely related and the solution to both lies in an overhaul and redesign of the RSPT similar to the PRRT taking into account of State royalties and a rebalance of budget through other savings, such as the potential savings from a smaller and more focused and more efficient federal public bureaucrats, as proposed by the opposition.
The big problem, though, is that Swan, the designer of the current RSPT, is still the Treasurer who is responsible for negotiations with miners on RSPT.
He should have step aside from the Treasury portfolio and move to another one like to finance, employment or education with the hat of the deputy prime minister on.
That is, a seemingly promotion to get him away from Treasury.
He is unlikely to be a good Treasurer after the RSPT debacle.
On the new PM, she does need to move away a bit from her past approach to industrial relations and pay more attention to market efficiency and productivity. That is for sure.
The two issues are closely related and the solution to both lies in an overhaul and redesign of the RSPT similar to the PRRT taking into account of State royalties and a rebalance of budget through other savings, such as the potential savings from a smaller and more focused and more efficient federal public bureaucrats, as proposed by the opposition.
The big problem, though, is that Swan, the designer of the current RSPT, is still the Treasurer who is responsible for negotiations with miners on RSPT.
He should have step aside from the Treasury portfolio and move to another one like to finance, employment or education with the hat of the deputy prime minister on.
That is, a seemingly promotion to get him away from Treasury.
He is unlikely to be a good Treasurer after the RSPT debacle.
On the new PM, she does need to move away a bit from her past approach to industrial relations and pay more attention to market efficiency and productivity. That is for sure.
Subscribe to:
Posts (Atom)
Posts
